Meta’s Facebook and Nvidia are asking the U.S. Supreme Court to dismiss separate federal securities fraud lawsuits, marking a significant moment in the evolving landscape of corporate accountability. The Supreme Court, which currently holds a 6-3 conservative majority, will hear Facebook’s case this week and Nvidia’s case on November 13.
Background on the Cases
- Facebook’s Allegations: The case against Facebook stems from a 2018 class action lawsuit led by Amalgamated Bank, accusing the social media giant of misleading investors regarding the 2015 data breach involving Cambridge Analytica. Investors allege that Facebook failed to adequately disclose the risks associated with the breach, contributing to a decline in stock value when the news became public.
- Nvidia’s Allegations: Similarly, Nvidia faces a class action lawsuit concerning its disclosures about revenue derived from cryptocurrency sales. Investors argue that Nvidia downplayed how significantly the volatile crypto market contributed to its revenue growth in statements made in 2017 and 2018.
Legal Implications
The cases come on the heels of recent Supreme Court rulings that have limited the power of federal regulators, including the Securities and Exchange Commission (SEC). Legal experts suggest these developments may provide a favorable environment for corporate defendants like Facebook and Nvidia, as the Court may further constrict the ability of private plaintiffs to enforce federal securities laws.
- Impact on Private Litigation: Andrew Feller, a former SEC lawyer, indicated that the Court’s recent trend towards business-friendly decisions could embolden companies to challenge existing regulations aimed at holding them accountable. This shift may reduce the efficacy of private rights of action, which empower individuals to sue for securities fraud.
Facebook’s Defense
In its defense, Facebook contends that it was not legally obligated to disclose the Cambridge Analytica breach in its risk assessments, arguing that investors would reasonably interpret such disclosures as forward-looking statements rather than concrete risks that had already materialized.
Nvidia’s Defense
Nvidia argues that the plaintiffs in its case have not met the legal standards established by the Private Securities Litigation Reform Act of 1995, which sets stringent criteria for private securities fraud lawsuits.
Broader Context
Both cases highlight an ongoing debate about the balance of power between federal regulators and private litigants in enforcing securities laws. With the SEC reportedly under-resourced for its broad responsibilities, private securities class action lawsuits serve as a crucial mechanism for holding companies accountable for misleading practices.
Potential Outcomes
The outcomes of these cases could redefine the landscape for corporate accountability in the U.S., particularly in how private litigants can engage with federal securities regulations. As these cases unfold, they may set important precedents for how companies disclose risks and engage with their investors in the future.
